CS Disco, Inc. Q3 FY2025 earnings call

• Software revenue grew 17% YOY to $35.2M, total revenue grew 13% YOY to $40.9M. Adjusted EBITDA was negative $297,000, a $4.2M improvement YOY.
• Exceeded high end of guidance range for software revenue, total revenue, and adjusted EBITDA. Ended Q3 with $113.5M cash and short-term investments, no debt.
• Continued growth in revenue from large and small matters, especially multi-terabyte matters. Cecilia AI usage tripled YOY, Auto Review adoption had consistent sequential growth.
• Highlighted a large multinational IP-related customer case, sourced via territory-based account orchestration model. IDC named DISCO a leader in 2025 IDC MarketScape for end-to-end eDiscovery software.
• Focus on IP litigation, with DISCO's capabilities fitting IP cases due to handling complex file types, AI embedded for strategic advantage, and AI-assisted workflows reducing time to evidence.
• Richard Crum discussed DISCO's AI capabilities like dynamic topic clustering, predictive analytics, Cecilia AI (with features like Q&A, document summaries) and Auto Review, emphasizing trust and performance at scale.

Software revenue in Q3 was $35.2 million, up 17% year-over-year. Total revenue in Q3 was $40.9 million, up 13% year-over-year. Services revenues, including DISCO managed review and professional services, were $5.7 million. Gross margin in Q3 was 77% compared to 74% in the prior year. The proportion of revenue attributable to customers who each contributed more than $100,000 in total revenue over the last 12 months is 76%.

• Q4 2025 total revenue guidance: $38.75M - $40.75M; software revenue guidance: $33.75M - $34.75M; adjusted EBITDA guidance: -$3.5M to -$1.5M.
• Fiscal year 2025 total revenue guidance: $154.4M - $156.4M; software revenue guidance: $132.6M - $133.6M; adjusted EBITDA guidance: -$11.5M to -$9.5M.

Forward-looking statements involve known and unknown risks and uncertainties that may cause actual results to differ from those expressed. Information on factors affecting financial results is in SEC filings, including Risk Factors in the annual report on Form 10-K and upcoming quarterly report on Form 10-Q.

Q: How many cases are like the contingent one?

A: Richard Crum said there are a small number of other contingent cases, but nothing close to this size. Contingent cases are where payment is contingent on legal matter conclusion, and revenue is recognized when resolved. In Q3, $1.3M revenue was recognized from one such case.

Q: Are you still maintaining the target for in-quarter EBITDA breakeven for Q4 of 2026?

A: Eric Friedrichsen said they are still targeting adjusted EBITDA breakeven for Q4 of 2026, with investments in go-to-market, innovation, and transformational areas helping accelerate revenue, but the target remains Q4 2026 for breakeven.